TaxTMI 
TaxTMI 
2014 (1) TMI 1366
X X X X Extracts X X X X
X X X X Extracts X X X X
....anking. In terms of Section 36(1)(viia) of the Act, assessee is entitled to claim as a deduction in respect of any Provision for bad and doubtful debts made on account of aggregate average advances made by the rural branches of such bank. The section provides that such deduction shall not exceed 7.5% of the total income (computed before making any deduction under this clause and Chapter VI-A of the Act) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank. In terms of the said Section 36(1)(viia) of the Act, assessee being a Co-operative Bank, worked out the deduction at Rs.1,29,04,346/- and claimed the same in the return of income. In the course of assessment proceedings, the Assessing Officer noted that as against the claim of Rs.1,29,04,346/- made, assessee had made a Provision for bad and doubtful debts of Rs.50,00,000/- only in the books of account. For the said reason, the Assessing Officer restricted the deduction under Section 36(1)(viia) of the Act to the extent of the Provision for bad and doubtful debts made in the books of account i.e. Rs.50,00,000/- and the balance of Rs.79,04,346/- was disallowed. The CIT(A) has als....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under Section 36(1)(viia) of the Act is similar to the standard deduction allowable under Section 24(1)(a) of the Act relating to repairs allowable while computing income from house property. It was pointed out that the deduction under Section 24(1)(a) of the Act while computing income from house property is allowable on account of repairs whether or not such expenses are actually incurred; and, on the same analogy it is sought to be made out that the deduction under Section 36(1)(viia) of the Act is allowable in respect of the advances made by rural branches of such bank regardless of the fact whether assessee has made an entry on account of Provision for bad and doubtful debts. 7. On the other hand, the learned Departmental Representative appearing for the Revenue pointed out that the lower authorities were justified in restricting the deduction under Section 36(1)(viia) of the Act to the actual amount of Provision for bad and doubtful debts made in the books of account by relying upon the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala vs. CIT, (2005) 272 ITR 54 (P&H). The learned Departmental Representative further referred to the CB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erein is in "respect of any provision for bad and doubtful debts made by........" an eligible assessee. The presence of the aforesaid expression in the section supports the plea of the Revenue, which is to the effect that the deduction allowable under Section 36(1)(viia) of the Act is in respect of the provision "made" by the assessee. In our considered opinion, the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra) clearly covers the controversy in favour of the Revenue and belies the interpretation sought to be canvassed by the assessee. In the case before the Hon'ble High Court, assessee-bank had originally filed its return of income for assessment year 1985-86 claiming deduction under Section 36(1)(viia) of the Act at Rs.1,90,36,000/-. After filing of the return the provisions of Section 36(1)(viia) of the Act were amended by Finance Act, 1985 whereby deduction was enhanced to 10% of the profit or 2% of the aggregate average advances made by rural branches of the bank, whichever was higher. On account of the amended provisions, assessee filed a revised return of income on 24.04.1986 enhancing the claim for deduction from Rs.1,90,36....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher." 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debts equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to cl.(vii) of s.36(1) of the Act, which reads as under : "Provided that in the case of an assessee to which cl.(viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause." 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under s. 36(1)(viia) of the Act. The Tribunal has distinguished various authorities rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial discipline. For the said reason, we refrain from discussing each of the decisions of the Tribunal relied by the assessee before us. 13. The other plea of the assessee was that the contents of the CBDT Circular dated 26.11.2008 (supra) is contrary to the provisions of Section 36(1)(viia) of the Act and therefore the same should be disregarded. In our view, the following explanation in respect of Section 36(1)(viia) of the Act rendered by the CBDT in Circular dated 26.11.2008 (supra) by way of para 2(iii)(b) as under :- "(b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less." is in line with the interpretation of the section rendered by the Hon'ble Punjab & Haryana High Court and cannot be said to be contrary to the provisions of the Act. Therefore, the reliance placed by the lower authorities on the CBDT Circular dated 26.11.2008 (supra) cannot be faulted. 14. Before parting, we may refer to the decision of the Hon'ble Supreme Court in the case of Catholic Syri....